Why Savers Need Help Estimating the True Cost of Retirement

There is a persistent difference where households who are guessing tend to overestimate required savings at lower income levels and underestimate required savings at higher income levels. The difference could be due to a variety of factors, but one potential culprit is the progressive nature of Social Security retirement benefits, which replace a higher portion of wages at lower income levels.

This effect becomes clearer in the following chart, which compares the ratio of the median divided by the income level, for different income levels.

Source: EBRI 2024 RCS, author’s calculations

The estimated and guessing trendlines cross at about the $100,000 total household income level. This suggests that lower-income households who are guessing about required retirement savings could be oversaving and those with higher incomes could be undersaving.

The following chart looks at the behaviors taken among workers who attempted to estimate required savings.

Source: EBRI 2024 RCS, author’s calculations.

Trying to figure out required savings had a number of notable positive benefits, in particular saving more for retirement, which 52% of respondents noted doing. Additionally, 29% of respondents noted researching other ways to save, 24% of respondents noted paying down debt, and 22% of respondents noted enrolling in their defined contribution plan.

This suggests that helping participants determine retirement savings can not only provide the household with better information about how much it needs to save, but that it could lead to other behaviors that could positively affect retirement outcomes.

David Blanchett is head of retirement research and portfolio manager for PGIM DC Solutions, which helps American workers save and spend in retirement.